Monday, December 03, 2007

Today's Important Analyst Reports

Several of you have asked to see several key research reports:

- BofA's downgrade of E*Trade (See the report here)
- Morgan Keegan's downgrade of Research in Motion (See the report here)

A quick rundown of the E*Trade downgrade:
- BofA doesn't sees diminishing value in the brokerage business
- E*Trade's home equity portfolio could be sold in a firesale (perhaps at 70 cents on the dollar) or E*Trade could be required to increase its loan loss reserve by $1B. An increase in the loan loss reserve would basically wipe out any earnings from brokerage in 2008.
- Fair value could be as low as $2 for the entire Company
- Seems to be a sweetheart deal for Citadel

"Despite Citadel’s $2.5B capital infusion into E*Trade, Citadel’s the clear winner here, getting a $3.0B ABS book which is ~80% 1st lien prime mortgages for $0.27 on the dollar, $1.75B of debt at 12.5%, & 84mm shares of common stock for nothing, as ETFC shareholders suffer 50%+ EPS & tangible equity dilution"


A quick rundown of the RIMM downgrade:
- Morgan Keegan thinks long-term RIMM is well positioned to pick up share and capture growth from the secular trend toward smart phones (currently RIMM has 1% of the entire mobile handset market and 10% of the smartphone market)
- However, Keegan is worried about broader global macroeconomic weakness and perhaps pressure from financial institutions to maintain demand for RIMM products
- The upgrade cycle for 8000 series phones (Pearl/Curve) seems to be in its later stages and thus the next growth story from RIMM will have to come from increasing appetite for the 9000 series of Blackberry phones, which is yet to be seen.

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